Beyond the Target Customer: Social Effects of Customer Relationship Management Campaigns

Abstract

Customer relationship management (CRM) campaigns have traditionally focused on maximizing the profitability of the targeted customers. The authors demonstrate that in business settings characterized by network externalities, a CRM campaign that is aimed at changing the behavior of specific customers propagates through the social network, thereby also affecting the behavior of nontargeted customers. Using a randomized field experiment involving nearly 6,000 customers of a mobile telecommunication provider, they find that the social connections of targeted customers increase their consumption and become less likely to churn, due to a campaign that was neither targeted at them nor offered them any direct incentives. The authors estimate a social multiplier of 1.28. That is, the effect of the campaign on first-degree connections of targeted customers is 28% of the effect of the campaign on the targeted customers. By further leveraging the randomized experimental design, the authors show that, consistent with a network externality account, the increase in activity among the nontargeted but connected customers is driven by the increase in communication between the targeted customers and their connections, making the local network of the nontargeted customers more valuable. These findings suggest that in targeting CRM marketing campaigns, firms should consider not only the profitability of the targeted customer but also the potential spillover of the campaign to nontargeted but connected customers.

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